US Tax Court cases in a nutshell. There are so many ambiguous areas of the tax code in which the IRS falls back on the old stand by "we'll consider all the facts and circumstances to determine if your position on a tax return should be supported." Tax court cases show us the IRS in action doing just that! (Please note that blogs may include sections copied directly from court case decisions found at ustaxcourt.gov)

Sunday, January 15, 2012

The ‘Woulda, Shoulda, Coulda #1’ Case

Barely into 2012 and we already see vehicle deductions being disallowed. This is a no brainer folks – keep a log or don’t bother fighting the deficiency notice! TP who clearly drove his automobile a substantial number of miles as part of his employment (as a traveling sales person) was denied $19k of unreimbursed employee expenses deductions. Although he provided some contemporaneous records regarding his automobile expenses, they were insufficient to substantiate the number of miles driven and when and where he drove for business. He provided no documentation regarding his meals and entertainment expenses or his nonautomobile expenses and failed to establish the portion of his home which was devoted to his employment.

Take Aways:

• It is a common misconception that if you deduct actual vehicle expenses, it is not necessary to keep a mileage log. This is absolutely incorrect. Another misconception is that if you incorporate you no longer need to keep a mileage log – also incorrect. If you have vehicle use deductions you must have a log: date, business miles driven, and business purpose for the driving - every day (even if it is always the same) plus start and end odometer readings for the year to calculate total miles.

• Use of office in home is so uncommon for an employee that it is often not worth the increased scrutiny to claim this deduction. Against schedule C income, the home office saves SE as well as income tax but not so when taken on a 2106.